If an investment account is setup for a minor can they withdraw money without penalty when they turn 18?

I think a minor can only have a custodial account, no?....what kind of account?

I believe you are right but can take ownership of it at 18. I just don’t know if they can draw funds without a penalty. I would think they could with anything other than an IRA.

Are you speaking of a taxable brokerage account? You pay taxes on gains if you withdraw but there is no penalty.

There are accounts that can be set up for minors where the minors do the actual trading as opposed to the parents. In those accounts the parents actually cannot execute trades... only the minors. Money can be removed from these accounts without penalty both before and after the minor turns 18. There are also youth brokerage accounts that the parent manages/trades in.

It might help if you could be more specific about what you were looking to do........

Fedalitys youth acount the kids do the trading in . Has an age minimum of 13.

That's good to know. I'm gonna get my child on it. I never knew that was a thing.

I’m looking to invest for their future but I don’t want to have to manage it.

Im sure other firms have similar. I just know what fedality has since i have several accounts with them and got the email about this offering on the youth acounts. . You can also open custodial Rothschild if they have earned income. I made a deal with the kids to match anything they put in their roths to encourage them to put some in it. ( you know in your teens retirement is a long ways out of your mind.)

Schwab offers an account where the custodian rather than the kids make the decisions. You do NOT want a custodial Roth if you want the kids to be able to access it penalty free before retirement age. I believe a custodial brokerage would be closer to what Hobbie is looking for. With that the kids can access it when they come of age (18 or 21 depending on state) without penalty although of course there would still be capital gains taxes as it is not a tax-advantaged account. However.... if the intended use of the money is for higher education, then there is also other options to consider as well, that would be tax-advantaged and accessible but only for education expenses without penalty....

Custodial accounts will be subject to taxation. If that is a penalty, then the answer is: yes! Just set up two at Fidelity.

"First $1,350: Tax-free (exempt from federal income tax).
Next $1,350: Taxed at the child’s tax rate.
Amount over $2,700: Taxed at the parent’s marginal tax rate."

Thank you much.

Hobbie: most of what ya need to know has already been said. I'll just tell you what i did.

I have three granddaughters and I opened a custodial account for each of them when they were tiny. When I opened those accounts I set the age at which they could access them WITHOUT custodial permission..........at 25. In the intervening years the state of Alaska changed its laws so that the 25 became 21.


Over the years the funds could be accessed by the custodian...in this case their mom....my daughter. The account could be added to by anyone as long as the custodian was aware of it. Once the two older girls hit 21 they took over their accounts.

Any withdrawals they would have made prior to becoming 21 would NOT have been penalized. Any taxable events that may have taken place inside the accounts would have to be recognized on 1040 schedule D.

But in general there were no downsides as far as I can see.

Fantastic and thank you Sir!

For education I would go with a 529. In indiana you get an automatic 20% state tax credit on money put in it believe the limit on the tax credit has gone up to about 10 k a year but last time I did this it was at 7500. 20% return automatically with no risk and tax free growth. Although I didnt get any growth since my daughter was going to school at the time. So I opened the 529 put the state limit amount to get max tax credit in left it 1 month than took it out and paid that right to the school vs just paying the school. At tax time I got an extra 1500 back from the state.

A custodial roth the contributions can be accessed before 59.5 penalty free but not the growth. Same as any roth.

a 529 education account they can.

my kids had these set up by grandparents.

Before Roth and 529 accounts, we used UGTMA accounts. They were taxable. Kid got access to these accounts at 18. Both my kids had one. I remember purchasing braces and band instruments with these funds, then used them for college expensed. Those type accounts are rarely used today.

Back prior to 2008 there was this thing called interest on savings. Not really a good option anymore.

Halfway decent interest income can still be had on high yield savings accounts or even US Treasuries.

Of course qualified dividends, generated from US equities, can be even better and more tax efficient than interest income.